Discussion:Estate income vs Personal income
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Discussion Forum Index --> Advanced Tax Questions --> Estate income vs Personal income
Discussion Forum Index --> Tax Questions --> Estate income vs Personal income
| 3 December 2007 | |
| I do not deal with Estate taxes at all but have a question. An unmarried individual dies in February and leaves his Traditional IRA to a nephew or niece. In order to pay all of the Estate taxes the Estate needs to remove money from the Traditional IRA. To whom is the money removed from the Traditional IRA in December income to? The individual who died? The recipient of the Inheritance? The estate?
Thanks, Dusty | |
| 3 December 2007 | |
| Are there no other assets from which to pay the estate taxes? Why aren't the taxes being paid proportionately from all of the assets? | |
| 3 December 2007 | |
| If you choose to make payments from IRA funds, the distribution will be taxable to the beneficiary of the IRA. | |
| 3 December 2007 | |
| If the decedent left a $3 million IRA to one beneficiary, and had no other assets, then it would be equitable to pay the tax from that one asset. It would be obvious that the payment would have to come from that one and only asset.
If the decedent left a $3 milion IRA to one nephew, and a $2 million real estate portfolio to a niece, then the liquid asset, the IRA, may be the easiest asset to tap for the taxes. But then that leaves the nephew in a worse place than the niece relative to what he was supposed to inherit and what he did inherit. Now to tax him personally on it too - wow. Sounds like someone didn't do too good a job with estate planning. | |
| 3 December 2007 | |
| Or, if in the likely case, IRA is worth $100K, PA's $15G is the beneficiary's liability. | |
| 4 December 2007 | |
| Kevin and Dennis:
There is an old house that is not worth much and will take a long time to sell. There was an old car but again, not worth much. Other than that the IRA is all there is. So it is taxable to the beneficiary. Thanks, that is what I needed to know. Dusty PS: You guys are the best and yes, the Uncle did not do very good estate planning. | |
| 4 December 2007 | |
| Remember he will get the deduction for certain estate taxes paid on his personal return as he withdraws the IRA. | |
Mtmckeecpa (talk|edits) said: | 4 December 2007 |
| How does that work, IF, the decedent left an IRA of $900,000 that goes entirely to Billy beneficiary, and the rest of the estate, say $1,500,000 is distributed according to the will that also includes Billy, Susie, & Jimmy?
How is the estate tax liability, if any, allocated among the assets? | |
Death&Taxes (talk|edits) said: | 4 December 2007 |
| Assume an estate tax rate of 45%, which would mean 405K was paid in estate tax on the IRA [this is very simplified].....then each year a distribution is made, 45% of that distribution is deducted on Sch A, Line 27 until the entire 405K paid on the IRA is used up.
What really happens is that you compute the estate tax without the IRA distribution and subtact the answer from the estate tax paid. That is the amount that will be recovered over the distributions. Reduce to a percentage to do so. | |
| 4 December 2007 | |
| A properly drawn will or trust gets pretty specific about estate tax liability. Absent that, there are court procedures to recover from non probate beneficiaries. The case David describes is tricky in that the IRA beneficiary gets credit for taxes he didn't pay. | |
| 6 December 2007 | |
| Kevin: Line 27 or 28 of Schedule A, if I remember correctly? But only for the portion that applies to this years income. | |
Death&Taxes (talk|edits) said: | 6 December 2007 |
| Right, only the portion that applies to this year's income. I usually have a back up worksheet showing the total and then the deduction taken by years, with a subtotal each year of the amount available. At the top I show the initial calculation (which can change if the estate tax is adjusted) | |
| 6 December 2007 | |
| Do note that the deduction is only for Federal Estate Tax. There is no deduction for PA inheritance tax. | |
| 7 December 2007 | |
| Dennis:
Thanks for the reminder on PA tax. Great thead everyone. Dusty | |
